Thinking About a Nonprofit Merger? Start With the Right Conversation

Nonprofit mergers can be difficult to talk about.

Sometimes the conversation starts because two organizations are providing similar services. Sometimes there is increasing competition for funding. Other times, one organization is struggling financially, an Executive Director is preparing to retire, or the board is simply wondering whether the community would be better served if two organizations worked together.

But once someone starts thinking about a merger, there is an immediate practical question:

Who should bring it up?

Should the Executive Directors talk first? Should the board chairs? Should the entire board be involved from the beginning? There is no single process that fits every situation, but in most cases, the best approach is to start small and bring the boards into the process early.

Start With an Exploratory Conversation

If an Executive Director sees a potential fit with another organization, it is reasonable for the two Executive Directors to have an initial conversation. That conversation does not need to begin with, “Should our organizations merge?” In fact, it probably shouldn’t. A better starting point might be:

“Our organizations have a lot in common. Do you think there might be opportunities for us to work more closely together?”

The purpose of that first conversation is simply to find out whether there is mutual interest in exploring the idea. This is not the time to negotiate who would lead the combined organization, what it would be called, where the office would be located, or which board members would remain. And it is important to remember that a merger is not the only possible outcome. Shared services, joint programming, program transfers, affiliations, or other collaborative arrangements may accomplish many of the same goals without actually combining the organizations.

Bring the Board Chairs in Early

If the Executive Directors believe there may be a legitimate opportunity, the conversation should move to the board level relatively quickly. A good next step is often a confidential conversation involving the Executive Director and board chair from each organization. This small group can begin asking the bigger questions:

• Why are we considering this?
• What problem are we trying to solve?
• Would combining the organizations strengthen the mission?
• Are the organizations truly compatible?
• Is financial distress driving the discussion?
• Are leadership succession issues involved?
• Could another type of collaboration accomplish the same objective?

Most importantly, they can determine whether there is enough potential benefit to warrant involving the full boards.

The Boards Should Authorize Exploration, not a Merger

Once the conversation becomes serious, the boards need to take ownership of the process. But there is an important distinction. The question presented to the boards should not be:

“Should we merge with Organization B?”

It should be:

“Should we explore whether a strategic combination with Organization B could better advance our mission and strengthen the organization?”

That is a very different decision. At this point, the board is not agreeing to a merger. It is agreeing to investigate one. The answer after that investigation might ultimately be to merge. It could also be to develop a different type of partnership or to remain completely independent. Walking away from a merger discussion is not a failed merger. Sometimes it is evidence of a good governance process.

Management Should Be Involved, But the Board Should Lead

Executive Directors are essential to the process. They understand the organization’s programs, employees, funders, operations, culture, and challenges in ways the board may not. But there is another reality that should not be ignored. The Executive Directors also have a personal interest in the outcome.

If two organizations become one, there may only be one Executive Director. Positions may change. Staff may be eliminated or reassigned. Offices may close. Organizational names may disappear. That does not mean Executive Directors cannot objectively participate in the process. It simply means the merger cannot become a transaction negotiated by two Executive Directors and then presented to their boards as a nearly completed deal. Management can help identify and evaluate the opportunity. The board must ultimately determine whether pursuing it is in the best interests of the organization and its mission.

Don’t Wait Until There Are No Good Options Left

There is also a tendency to think about mergers only when an organization is in trouble. That is often too late. An organization that still has healthy cash reserves, stable leadership, strong programs, and funding relationships has choices. An organization that cannot make payroll in 60 days does not have nearly as many.

Boards should be willing to discuss strategic combinations before necessity makes the decision for them.

Two financially healthy nonprofits may decide they can accomplish more together. Organizations with overlapping programs may recognize that maintaining two administrative infrastructures no longer makes sense. A leadership transition may provide a natural opportunity to rethink organizational structure. Those conversations do not mean a nonprofit has failed. They may mean the board is doing exactly what it is supposed to do: looking beyond preservation of the organization itself and asking what structure will best serve the mission.

Start With the Mission, Not the Merger

The first conversation about a potential nonprofit merger should not be about which organization survives. It should not be about whose name remains on the building. And it certainly should not begin with who gets to be Executive Director. It should begin with a much simpler question:

“Would the people we serve and the missions we pursue be better served together than apart?”

If the answer might be yes, it is worth having the conversation. If the answer eventually turns out to be no, having asked the question was still worthwhile.